Too Bad for U.S.

The good news: Richard Branson, the mogul behind Virgin Airlines, who recently started a private venture into space tourism, wants to build an oil refinery.

Like the rest of the airline industry, Mr Branson's Virgin Atlantic Airways has been stung by higher jet fuel prices and was forced to raise fuel surcharges for the second time in four months.

Hurricane Katrina sent oil prices soaring to $US70 a barrel because it shut several US Gulf Coast refineries, which turn crude oil into products like diesel, gasoline and jet fuel.

"If we don't start now to get more refineries built then fuel prices could literally rocket to $US100-$US200 (per barrel of oil) and the world economy would come to a grinding halt," Branson said in an interview on financial news network CNBC overnight.

The bad news: It likely won't be in the good ol' U.S. of A. Remember the words of James K. Glassman on why our gasoline prices are so high?

The oil is there. The obstacles to putting it to use are strictly political: restrictions on drilling, on building refineries [bold added] (the number has dropped by more than half since 1980), and on making the distribution system more efficient. Remove the barriers, and prices will fall.

For anyone who might doubt that, Branson wants to build a refinery and could easily afford to, but oil analysts think he will avoid trying to build in the States.

"My immediate reaction to that is: Not in the US," said Paul Flemming, oil analyst at Energy Security Analysis Inc. "That's definitely more pie in the sky than anything."

In the US, getting a permit could involve years of navigating local, state, and federal regulations and protests from environmental and community groups, analysts say.

With all this talk about "cutting red tape" to get aid to victims of Katrina, why has it not occurred to anyone that one need not cut red tape if one gets rid of it altogether? And why speak of getting the government out of the way only during emergencies?

Had the United States more oil refineries (and required the manufacture of fewer special blends), gasoline prices would have been lower before Katrina to begin with and would have increased by less after the storm hit refinery-rich Louisiana -- assuming that refineries were more evenly spread out geographically than they are. The government admitted part of its role when it waived certain clean air standards after Katrina to "stabilize gas prices".

Too bad this is just a short-term, range-of-the-moment fix. These regulations should be abolished altogether, as should those that have prevented new refineries from being built for decades. But having regulated itself into crisis management mode, the government will reinstate the restrictive regulations as soon as it feels people will tolerate the additional pressure on gas prices again. Note that this waiver is, in essence, additional government regulation! This is a classic example of the economic principle that controls breed controls.

The premise that everything is up to the government is why, when gasoline prices stay up, our government will be more likely to flirt with price controls rather than getting out of the way -- permanently -- of new refinery construction.

Only when our electorate gives up its paranoia about companies "price-gouging" at the pump (due to a shortage created in the first place by its elected representatives) in favor of a willingness to permit men like Branson to make real money, we will get better government and lower gasoline prices.

Our nation's response to rising gasoline prices so far gives "penny wise, pound foolish" new meaning.

Here's hoping Branson is successful in finding a way to save on jet fuel, and make additional money. Too bad for us it won't be here.

-- CAV